week 3 Flashcards
What is opportunity cost
The potential benefits that an individual, investor or business misses out on when choosing one alternative over another.
Examples of opportunity cost
A student spends three hours and $20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else. A farmer chooses to plant wheat; the opportunity cost is planting a different crop or an alternate use of the resources (land and farm equipment).
what are explicit costs + examples
explicit costs are normal business expenses that are tangible and easy to track; they appear in the general ledger.
example - wages, rent, salaries, materials
what are implicit costs + example
An implicit cost is a cost that exists without the exchange of cash and is not recorded for accounting purposes.
If a machine in the line of production breaks the cost of fixing it is an explicit cost but the revenue lost is an implicit cost
what are historic costs
a measure of value used in accounting in which the value of an asset on the balance sheet is recorded at its original cost when acquired by the company
a company that purchased a building in 1955 for a price of $20,000. In its accounting record, the asset value is $20,000. In the real market, however, this asset is valued at $875,000. Under the historical cost principle, the asset would remain in the company’s books at $20,000.
what is a replacement cost
it is a term referring to the amount of money a business must currently spend to replace an essential asset like a real estate property
if a building suffers from damage caused by a fire or terrorist activity, the replacement cost of the asset would refer to the pre-damaged condition of the asset.
what are the factors of production
labour
land and raw materials
capital
entrepreneurship
what are the differences between fixed and variable factors in production
Variable costs change based on the amount of output produced. Variable costs may include labour, commissions, and raw materials. Fixed costs remain the same regardless of production output.
What is the difference between short run and long run in production
The short-run production function refers to a period in which some inputs are fixed, while others are variable. In the short run, a firm can adjust its production output by varying the number of variable inputs, such as labour and raw materials, while keeping certain inputs fixed, such as capital or plant size.
The long-run production function refers to a period in which all inputs can be varied or adjusted. In the long run, firms have the flexibility to change the quantities of all inputs, including capital, labour, and raw materials, to optimize their production process and maximize output.
what is the law of diminishing returns?
A theory in economics that after some optimal level of capacity is reached, adding an additional factor of production will actually result in smaller increases in output
what is total physical product (TPP)
Quantity of output (Y) that is produced from a firm’s fixed inputs and a specified level of variable inputs (X)
What is average physical product (APP)
The quantity of total output produced per unit of a variable input, holding all other inputs fixed. Average physical product, usually abbreviated APP, is found by dividing the total physical product by the quantity of the variable input.
What is the marginal physical product (MPP)
The MPP is the amount of physical product that will be produced with the addition of one unit of a factor, other factors being given
what are total fixed costs (TFC)?
the total amount of money a business must pay to keep its operations running regardless of how many products they make or sell.
What are total variable costs
the sum of all variable costs associated with each individual product you’ve developed. Calculate total variable cost by multiplying the cost to make one unit of your product by the number of products you’ve developed.
What is average fixed costs and calculation (AFC)
Average fixed costs are total fixed costs divided by the number of units of output, that is, fixed cost per unit of output.
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what is average variable costs and calculation (AVC)
The average variable cost (AVC) is the total variable cost per unit of output. This is found by dividing total variable cost (TVC) by total output (Q).
What is average (total) costs (AC)
Average Cost, also called average total cost (ATC), is the cost per output unit. We can calculate the average cost by dividing the total cost (TC) by the total output quantity (Q). Average Cost equals the per-unit cost of production, which is calculated by dividing the total cost by the total output.
